As the financial crisis has spread throughout the globe, leaders in Asia and Europe have increased efforts to band together, coordinating economic action.
Over the past few weeks, several regional meetings have taken place, bringing together leaders from a number of countries with vastly different economic systems. Ten member countries of the Association of Southeast Asian Nations (ASEAN) as well as China, Japan and Korea agreed to work together to maintain stable currency values. In Europe, several leaders agreed to double the resources of the International Monetary Fund to $500 billion.
These multilateral agreements come ahead of the scheduled G20 summit in April, featuring both advanced and developing economies.
Peter A. Petri is a senior fellow at the East-West Center in Honolulu and former dean of the International Business School at Brandeis University. He writes at the “East Asia Forum” blog that this level of global cooperation is unprecedented, and will change the face of the world’s economic order.
Global response to economy in works
What do Berlin, Germany and Hua Hin, Thailand, have in common? Not winter weather, for sure. But this week, briefly, both offer a little sunshine for the world economy. European and Asian leaders meeting in these cities are pledging hundreds of billions of dollars for international financial rescue plans.
The bad news is that their actions reflect a rapidly deepening global crisis. The “other shoe dropping” in the downturn could be collapsing currencies and bankruptcy in several countries. This happened in Iceland, and it could happen soon in Hungary, the Baltic countries, Pakistan and others.
The good news is that leaders are beginning to fashion a global response to the crisis. This still faces many obstacles, but a “yes, we can” attitude is starting to emerge. It could bring benefits not just in stemming the meltdown, but also on other global decisions, like trade and climate change.
In Berlin, European leaders agreed to double the lending capacity of the International Monetary Fund to $500 billion. In Hua Hin this weekend, Asian leaders agreed to improve the structure of the Chiang Mai Initiative, the region’s emergency lending pool, and increase its size to $120 billion.
This is a sea change. A year ago, the IMF looked headed for extinction. Turkey was its only client and one-quarter of its staff opted for early retirement. The CMI, created after the 1997-98 Asian crisis, had never lent any money, and stood instead as a silent reminder of the difficulties of Asian cooperation. Now both are springing back to life.
It’s high time for global cooperation — but it has been hard to find a leader. The world’s economies need to work together to stop the “adverse feedback loop” that Federal Reserve Chairman Ben Bernanke highlighted in his Senate testimony on Tuesday. Every economy in recession buys less from others, and every bank that collapses puts others at greater risk.
China was one of the first countries to act, with a stimulus package of nearly $600 billion. The U.S. has now joined with its $800 billion package, and other countries are moving, too.
But most countries have stimulus packages well below 2 percent of GDP, much smaller than those of China and the U.S. Many still hope a world recovery will save them. Unless they act together, it won’t.
[…]In the ashes of the old economic order, a new one is taking shape. It will be based on a coalition of countries perhaps led, but not dominated, by the United States. It will require joint policies inconceivable in simpler times. With luck — and time — these could help to turn the global economy around and lead to more effective ways to govern our incredibly complex world.
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